Questions and Answers: 45G tax credit

Help from the 45G shortline tax credit allowed the Kansas & Oklahoma Railroad to upgrade 43 miles of rail.

The current extension expires at the end of 2013; industry action is needed to help secure its future.

This month, railroad representatives, industry suppliers, shippers and other rail supporters will gather in Washington, D.C., for Railroad Day on Capitol Hill. Among the issues being discussed will be the continued support of the Section 45G Railroad Track Maintenance Credit. The credit, which has been extended through Dec. 31, 2013, was originally enacted in 2004 to provide shortline and regional railroads a tax credit of 50 cents per dollar spent on track improvements.

In a statement issued after the last extension, Richard F. Timmons, president of the American Short Line and Regional Railroad Association (ASLRRA), said, "The 45G success story is the story of reducing federal taxes and interference with small businesses and allowing those businesses to invest more of what they earn in ways that benefit all Americans."

RT&S spoke with Jeff Van Schaick, associate with Chambers, Conlon & Hartwell, LLC, the lobbying firm for ASLRRA, to discuss the tax credit and see how the current climate in Washington could affect the tax credit's future.

RT&S:Why is this legislation important to the entire rail industry, not just the shortline market?

Van Schaick: The 45G tax credit provides a value and incentive for shortline railroads, which spills over into every part of the rail industry. Shortline customers have more efficient and reliable service and shortline contractors are hired to do increased amounts of work, creating and preserving thousands of well-paying jobs across the country.

RT&S: With new members of Congress now serving, how does this change the sponsor make up of the current tax credit legislation?

Van Schaick: I don't believe it does. Educating new members is always something we try to do early in the year, which is one of the reasons we have Railroad Day on Capitol Hill in February or March. Last Congress, there were 84 Republicans in the freshman class. We were successful in securing 57 of them. Having the support of that large class was critical to our most recent extension. There are 94 new members this Congress and we will try to meet with each office to tell them about the shortline railroads in their district. Some members will eagerly sign on to the bill and some won't, but that's ok. The important thing is that we continue to educate and inform members of the benefits that shortline railroads provide to the community.

RT&S: Did the election results pose any challenges to the tax credit's future?

Van Schaick: The make-up of this Congress will be similar to what it was last Congress. We'll have a Republican House, a Democratic President and a Democratic Senate. We should see more discussion about overall total tax reform and the current group of tax extenders will surely be a discussion point. We will work to get the congressional support (cosponsors) we need to be considered in future legislation.

RT&S: The current extension is retroactive for 2012 and lasts through December 2013. Has ASLRRA membership said if this will help them in their current infrastructure maintenance plans? What would be the ideal length of time for the credit to be extended?

Van Schaick: Much of the work being done on shortlines is necessary maintenance and that work continued through 2012 before the credit was extended. Since shortlines now have an additional year to plan their credit-aided maintenance projects, they can take a serious look at some of the bigger cost items that need attention like repairing or replacing the aging bridges on their lines. Private and government studies indicate it will cost $13 billion to bring the national shortline system up to the necessary level of efficiency. 45G has helped fund almost $3 billion of that in infrastructure upgrades since 2005.

RT&S: After the last extension, there were a few bloggers who called the tax credit a "wasteful subsidy." Is there concern about being labeled as such?

Van Schaick: I am not aware of anyone who has called 45G a wasteful subsidy. The fact is that 45G incentivizes [more than] $300 million per year in additional infrastructure spending, which then helps local businesses and local communities. For example, in Kansas, 45G leveraged more than $2.6 million in track improvement to connect two cement plants in Neosho County to the national rail network. The two rail customers are the backbone of economic opportunity in Chanute and Humboldt and the local shortline's constant focus on improving the infrastructure keeps their customers competitive in the North American market. There is nothing wasteful about creating jobs and improving local communities, especially when the marketplace is empowered to make the most efficient investment decisions possible.

RT&S: Why is it important to give the smaller railroads a tax break rather than open the legislation up to all railroads?

Van Schaick: The 45G credit was created by Congress to preserve light density branch lines. These are the shortlines; the lines most in need of investment. The credit is targeted to improving existing shortline track and it serves its targeted purpose very efficiently.

RT&S: Is there still a push to include shortlines established after 2005 in the legislation?

Van Schaick: Yes. Each extension bill that has been introduced has included shortlines that have been established since 2005 to be eligible for the credit. Investments to these miles are not qualified expenditures under 45G and we continue to work to make them eligible. Legislation has been introduced this Congress that will include shortlines that were established from 2005 to 2013.

RT&S: What actions will the rail industry as a whole need to take in order to better the chances of the tax credit receiving another extension?

Van Schaick: We need to continue to tell our story. We are constantly innovating to make our systems faster, safer and better for the environment. The rail industry is investing billions of its own dollars in infrastructure and that creates well-paying jobs and stability in our communities. For the tax credit to be successful, the industry needs to continue to build solid relationships with its elected leaders, not only on the federal level, but the state and local level, too.